Shots Fired in the War on Payment

As we detailed over the last couple of weeks, Apple has incorporated nascent technologies — like Near Field Communications — into the iPhone 6 and 6+ that could jumpstart ancillary industries like mobile payment. While some companies have tried their hand(s) in these arenas before (e.g. Google Wallet), none of them have really caught on in a major way.

Apple recently launched their version of mobile payment, called Apple Pay. The technology does not differ markedly from Google Wallet or any other NFC-based payment system — it still uses short-range signals to communicate between two pieces of hardware. But Apple just might have the right combination of vertically integrated hardware and software, imminent usability and the “cool factor” to make NFC take off in a way it hasn’t before.

There are some pretty big roadblocks to widespread adoption, though — the first being physical limitations. In order for NFC to work, it requires two pieces of physical hardware. It doesn’t matter if your phone is NFC compatible if the merchant you’re attempting to pay does not have a terminal that can receive the signals from your smartphone. So for merchants to truly embrace this technology, they’ll need to outfit their brick-and-mortar locations with nodes that can interface with NFC-enabled phones.

In addition to physical limitations, Apple has run into some problems with retail partners. While some companies have rushed on board, others are going to war with Apple over their preferred mobile checkout method.

Big box retailers like Wal-Mart and Best Buy have opted to disable Apple Pay even though both chains already have the NFC payment modules in their stores. The reason behind it, as far as I can tell, is to favor their proprietary payment system CurrentC (which is still in the works, due for a release date next year).

Despite the backing of major companies like WalMart, CurrentC is a rudimentary payment system housed in a poorly conceived user experience. It involves using your phone’s QR reader to scan a code displayed on the checkout screen. Or, your phone displays the QR code and the retailer scans that. Or if that doesn’t work, they can enter your code by hand. It appears these merchants are willing to impose a cumbersome experience on consumers purely for corporate financial gains.

Every time a consumer pays with a credit card, the card companies (Visa, Mastercard, AmEx, Discover) exact a 2 to 5 percent service charge on the retailer. So if you spend $100 at WalMart and pay with your Visa Card, you pay $100, WalMart gets $97 and Visa receives $3. That may not sound like WalMart is losing out on all that much, but multiply that by the number of transactions performed at brick-and-mortar retailers and that number becomes massive. The thinking goes that if these retailers can get you to link your bank account to CurrentC, the retailer can make a debit withdrawal, which has none of the associated service charges.

While you can link a debit card to Apple Pay, it’s just as likely that consumers will link their credit cards instead. In that case, the retailers are still losing 3 percent of the payment pie. From a capitalistic standpoint, it makes sense for these retailers to protect their bottom lines. I cannot fault them for that. But if they are going to go head-to-head with Apple over something consumers almost surely desire — hassle-free, secure mobile payment — they are going to have to come up with a better solution than this iteration of CurrentC.

In addition to its cumbersome design, many consumers might hesitate to grant big box retailers that level of access to personal financial information in light of recent hacks (think Target late last year). To make matters worse, it appears that CurrentC has already been hackedbefore it’s even on the market. Apple Pay, on the other hand, is bringing a new level of security to payments with fingerprint ID technology paired with industry-leading encryption practices. So no matter what, even if consumers buy into the QR code user experience, retailers have to convince consumers the platform is truly safe.

The final likely problem for retailers is that by blocking access to Apple Pay — and we assume other NFC payment solutions like Google Wallet — the companies are ignoring the desires of consumers in favor of purely profit-seeking motives. That might be good for the immediate bottom line, but if your consumers are unhappy, that bottom line might not look so good in the very near future. The retailers might be gambling that these forms of payment might not get that big anyway, so having a few tech geeks go to another retailer because the retailer blocked Apple Pay will be offset by the gains the retailers receive from CurrentC. But regardless of which side ends up on top at the end of this “battle,” the race to win payment is on.